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by Jim Kharouf

Why does everyone think day traders need all the bells and whistles to trade? When it comes right down to it, ease of order entry may really be the day traders biggest need.

Ask a trader about what tools you need today in this fast-evolving electronic trading world, and the answer often is - "It depends."

When looking at electronic trading systems - which include order-entry software, charting and data services, desktop computers, monitors and Internet access - what a trader needs depends largely on the type of trading he or she does. Scalpers and high-volume day traders may use different hardware and software than swing or position traders. And, so, like buying a car, it depends on what kind of needs and driver you are.

But in speaking with almost a dozen traders and instructors, a number of similar ideas emerge when examining the nuts and bolts of electronic trading - especially when it comes to order entry. The most common advice given is to find a setup that is fast, reliable and comfortable for your trading needs. That can mean offering automated functions that allow for many differing types of trades and spreads with one click. It also means that order-entry systems are often just one part of an entire package or trading platform.

There is little debate that electronic trading is easier and getting more sophisticated. As stock, futures and options exchanges become more electronic, so, too, are the number of contracts available that can be filled in a matter of milliseconds. And as exchanges from Archipelago to the Chicago Mercantile Exchange to the International Securities Exchange introduce new functionality on their trading platforms, order-entry systems are following suit with new spread and multiple order strategies. In other words, if an exchanges electronic platform is offering new functionality, chances are that traders will be getting them on their front-end trading software. Ultimately, using electronic order-entry systems, charting and data are just tools needed to do the job.

Dan Gramza, president of Gramza Capital Management in Evanston, Ill., and long-time trading instructor, said the entire electronic trading system is an amazing tool, but it still comes down to understanding what a winning or losing trade is.

"What is absolutely wonderful and absolutely terrible about electronic trading is, it is so easy to execute an order," Gramza says. "And so day traders have a tendency to trade just to trade. And that is not the business. The business is identifying clean business decisions. The process to trade should be mechanical. All of the thinking should be done before you ever execute a trade."

Thoughtful consideration should be given when choosing a system. Traders advise sampling a few different front-end trading systems or data and charting vendors to determine the right combination that works for your trading room and trading style. Here are some guidelines to help you make that decision.

Order Up Talk to enough traders about order-entry systems and eventually you find a common denominator which surprisingly is, they dont think about them much. And thats the point really. An order-entry system should be as comfortable and intuitive to use as the mouse or keyboard in front of you. Some traders advocate a trading screen that has buy and sell buttons at enough distance from one another so a trader is less likely to make a costly mistake. Others say they want a fairly flexible order-entry system that allows a trader to customize the screen and put contracts, prices and so on, where they want.

According to the traders interviewed for this story, the top element to look for in an order-entry system is stop functionality. While this seems almost a given, traders and gurus say having a variety of stop orders is part and parcel of a day traders job. Stop orders often serve as the primary risk-management tool day traders use to manage losses in a losing trade. Stop orders also are insurance against technical glitches. If the Internet connection goes down, computer melts down or the local power company goes dark, youre protected.

Stop-order functionality also can be influenced by each exchanges electronic trading platform. The Chicago Board of Trade (CBOT), for example, did not include stop functionality in its eCBOT trading system when it was fully launched in January 2004. Some brokers did not have stop orders built into their order-entry software and, therefore, had to add on that component for eCBOT contracts. It also meant that the broker was responsible for the stop order, rather than the exchange. The CBOT says it will be offering stop-market orders and stop-limit orders when it upgrades the system in October.

Denise Shull, a short-term trader in New York, says her order-entry system automatically installs stops on her trades at her set level. She uses hard stops and trailing stops in trading mini-Dow futures, E-mini S&P futures and E-mini Russell 2000 futures. Shull employs a strategy that breaks down a trade into quarters and adjusts the trade with stops as it goes along.

"You can do just about anything you can imagine with these strategies in terms of initial stops," Shull says. "You can also create specific stop strategies, as opposed to jus one hard stop. You can add trailing stops or auto break-evens."

Kate Meyer, a day trader in St. Charles, Illinois, who trades index futures, 30-year bond futures and the euro, says her front-end system allows her to enter multiple orders simultaneously with profit targets, and stops as well as trailing stops.

"For example, if you enter a three-lot, from your entry point your system will automatically sell one at your first target, another at your second target and the last at your third target," Meyer explains. "So if you reached a profit objective, youve automatically moved your stops according to your criteria."

While most of todays order-entry systems offer a long menu of functionality, it is the simple and straightforward instruments that traders use. Complex spreading or multi-legged trades across stocks, futures and options simply are not used often by day traders.

Even experienced traders say the key is to use a front-end that is simple to operate and provides the functions needed.

"I dont need all the fancy gadgets," says Chris Terry, LBRGroup.com, a trading chatroom. "I need something that can put a limit in and a stop. Thats that. I dont do any of the exotic stuff."

What is evident is that traders and trading instructors alike want to make the order-entry interface cleaner and simpler, rather than adding or using more bells and whistles. Most just want the basics - buy, sell, stops, limit orders.

Paul Quillen, president of daytradingcourse.com in Atlanta, could be considered a minimalist. He developed his own front end that does not show the account size, profit and loss on a trade - just the market being traded. "We want to be very intuitive when trading and actually want less information than most everyone else," Quillen says. "We want a minimum amount of information on our order-entry interface. We tried using other order-entry front ends but we couldnt eliminate enough extraneous information, so we developed our own intuitive interface."

Another crucial element of order-entry systems is the broker itself. Finding an online broker is simple enough, but traders say to make sure the broker is available by phone when something goes wrong. As easy as that may sound when a firm touts its 24-hour help desk, it is essential that your broker have a live person on the other end of the phone in a pinch. More than one trader said some brokers are just as well known for great technology as their reputation of not picking up the phone when a technical glitch occurs. Traders advocate asking others about the phone-service quality before setting up an account.

Looks Like, Sounds Like One feature traders and instructors were unanimous on was on the benefits of simulated trading. Traders say brokers order-entry systems should allow for real-time simulated trading, although some are tape delays of the market. Serious traders use simulated trading early and often. For one, it gets traders familiar with their order-entry system and charting software. And more importantly, it allows traders to understand their mistakes and winners.

"Its critical for traders who have not used that platform to get very comfortable with it," Gramza says. "You dont want to have to pay to learn mistakes made on the system."

He adds that many traders do not want to try out new things with their own money, which can limit a traders growth and opportunities. Shull, for example, was using simulated trading to experiment with the automatic trailing stop feature on her order-entry system.

"Its a tool that can verify a trade," Gramza says. "So if we assume that if this happens, this happens and I want to do the trade, is that a good strategy? If weve done our research and decided how much risk to take and how much profit - and shame on us if we dont know that before we enter the trade - you can see not only how the system performs but also how the strategy performs."

There are critics who say simulated trading doesnt always work because traders know it isnt real. A losing trade in a simulated environment is sometimes looked at like a car crash in a NASCAR arcade game. You just start over. Gramza, Terry and others disagree completely.

"Some people say there is no emotion attached until they put their money down," Gramza says. "That says something about that persons attachment to money and relationship to having to trade with money. It shouldnt be any different. One of the objectives a trader has is to stay unemotionally involved. Having a simulated environment allows us to say, Is this a clean trade? If so, Ill take it."

Terry advocates using a simulator for several months just so traders can get used to the look and feel of the markets they are trading. "A beginning trader should be real and honest and do simulated trading for six months and not restart every day because yesterday was a bad day," Terry said. "Count your wins, count your losses, and understand how hard markets are."

Clearing Away Clutter The less-is-more aspect of order entry, data and charting services applies to performance of a trading system as well. This brings up a litany of issues from a computers processing power, to the type of Internet connection used, to a brokers server configuration. Computer experts say seemingly benign programs such as e-mail or Internet programs can swallow precious memory and slow down order entry or price data coming in. That time lag can wreak havoc on a traders strategy.

Joe Whitney, technical manager for YJT Solutions (formerly You Just Trade) in Chicago, advocates using a high-end computer for trading and a second computer or back-up computer for Internet usage and e-mails. He recommends at least one GIG of RAM to handle trading, data and software.

And if speed is an issue, he recommends working with the brokers technical staff or the ISVs tech support to help set up the trading desktop for optimum processing. Whitney says many traders do not know how much of their computers memory is being used in just a standard PC configuration.

"A lot of folks order Dell computers, and when you order a PC like that, it comes pre-configured with a lot of bells and whistles running in the background that you wouldnt want stealing your processing power," Whitney says. "ISVs have optimization check lists to get the most out of your PC."

He also advocates checking with your broker to find out how its servers are configured. Many brokers today are dedicating servers to order routing and a completely separate server configuration for its own internal e-mail and non-trade-related traffic.

Keeping an Eye on Things, Finally, there is the visual issue that brings up the number of monitors a trader should use. Not surprising, there isnt a consensus number. Some experts like to have eight or more monitors so they can track a variety of trading opportunities. John Carter, president of Trade The Markets in Austin, Texas, says the number of monitors is a balancing act.

"There is a fine line between having enough monitors and having too many," Carter says. "I think two is the absolute minimum. Me, personally, I have eight trading monitors to look at swing-trading setups and day-trading setups."

Others recommend between two and four monitors. Quillen uses just two monitors - one for order entry and the other for a single chart with no extra colors, no grid lines and no trend or support lines. Beyond that, he says traders should keep their work space as bare as possible, adding that the mind can only handle five to 12 variables that are seen before but are not used.

"Take the 20 Post-It notes off the edges of your monitors," he says. "To do almost anything well, especially trading, requires intuition. Anything on the screen that puts you into an analytical mode inhibits your intuition."

Paul Quillen, Founder, Head Trader and Instructor
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